NACWA Legal Alert (Leg 05-04)

On June 3, the U.S. Court of Appeals for the District of Columbia Circuit (appeals court) upheld the November 2003 decision of the U.S. District Court for the District of Columbia (district court) that the anti-blending policies of U.S. Environmental Protection Agency (EPA) regions 3, 4 and 6 are not “final agency actions” reviewable in court. In its one-page opinion, the appeals court held that the regions’ policies must culminate in the denial of a National Pollutant Discharge Elimination System (NPDES) permit to rise to the level of court reviewable “final agency action.” Supported by the Association’s Targeted Action Fund (TAF), NACWA raised points important to publicly owned treatment works (POTWs) nationwide as an intervenor before both courts in Pennsylvania Municipal Authorities Association (PMAA) v. EPA.

Notwithstanding the court’s inability to eliminate the uncertainty surrounding blending at this time, NACWA will continue its strong efforts to work with EPA Headquarters and Congress to preserve blending as a viable wet weather management option for communities. In addition, NACWA would like to receive information from any community whose permit is denied or objected to because of blending. Knowledge of such permit developments will be important to NACWA as we continue to seek clarity on the blending issue for the clean water community.

This Alert summarizes the court’s opinion for NACWA members. The opinion and other helpful blending documents from the case are available in the Litigation Tracking section of NACWA’s Member Pipeline. As always, please feel free to contact NACWA’s General Counsel Alexandra Dunn at 202/533-1803 or adunn@nacwa.org with any questions.

I. Case Background
In July 2002, PMAA, the Tennessee Municipal League (TML), and the City of Little Rock Sanitary Sewer Committee, Arkansas (hereinafter PMAA), challenged Region 3, 4, and 6’s inconsistent positions on permitting blending, peak excess flow treatment facilities (PEFTs), and sanitary sewer overflows (SSOs), as well as EPA Headquarters’ failure to address the inconsistencies. The plaintiffs asked the district court to declare that: 1) blending is not prohibited under the Clean Water Act (CWA) and its regulations; 2) EPA cannot direct plant design or require the use of specific processes to achieve effluent limitations; 3) peak excess flow treatment facilities (PEFTs) can be permitted and are not subject to secondary treatment; and 4) the best achievable technology/best conventional technology (BAT/BCT) standard, not secondary treatment, applies to SSOs. NACWA successfully intervened in the case in October 2002.

As the case progressed, it primarily focused on the blending issue. Documents produced by EPA in 2003 during discovery revealed that Headquarters was aware of the inconsistent regional approaches and had analyzed the tremendous costs of prohibiting blending, and revealed a coordinated effort by the challenged regions to hold up blending permits. Notwithstanding this evidence, EPA defended the case by arguing that the Agency had not taken “final action” on any of the issues. When EPA proposed its draft blending policy in November 2003, the Agency cited it as evidence of the “non-final nature” of EPA’s blending deliberations. The district court dismissed the case on November 20, 2003 via a lengthy written decision.

A. District Court Decision
The district court’s decision acknowledged the clear disagreement between EPA regions over the legality of blending and of permitting PEFTs, and that EPA Headquarters had not acted to resolve the controversy. The district court ultimately concluded, however, that while national policy documents can constitute final agency action, the regional policy documents were not final actions. Helpfully, the district court added that the regional policies were not binding, and as such, did not mandate any operational changes – at least until a permit expired or was challenged. Giving cities one avenue for relief, the district court emphasized that permit denials are final agency actions reviewable in court. The district court pointed out that challenges to EPA regional or EPA Headquarters permit denials should be brought in the federal courts of appeals under CWA § 509(b)(1)(F) (governing “actions of the Administrator” to issue or deny permits), while challenges to state permit denials should be brought in state court.

B. Appeal
In February 2004, PMAA appealed the dismissal. PMAA asked the appeals court to review whether the district court should have found the regional policies “final actions,” declared the policies in conflict with Headquarters’ historic position allowing blending, or held Headquarters’ failure to address the inconsistent regional approaches reviewable under the Administrative Procedure Act (APA) as “agency action unreasonably delayed.” The appeal was put on hold in April 2004, as EPA reviewed the 98,000 comments received on the draft blending policy. When it became clear in August 2004 that EPA was not close to taking action on the draft blending policy, the appeals court ordered briefing to begin and granted NACWA’s pending request to intervene in the case.

PMAA and NACWA’s November 2004 opening briefs argued that district court erroneously dismissed the case, while EPA’s February 2005 brief supported the district court’s action. NACWA’s March 2005 reply brief documented the history of the secondary treatment and bypass regulations and emphasized the regions’ inconsistency with Headquarters’ past support of blending.

The appeals court heard dynamic oral argument in May 2005. Counsel for EPA argued that a “hodgepodge of internal Agency statements” could not constitute final agency action; that debate continued within EPA on how to apply the bypass regulation; and that the only reviewable EPA action was the denial of a permit. Surprisingly, EPA counsel asserted that the regions “can have different interpretations of the same regulation.” Counsel for PMAA and NACWA explained, in separate presentations, the practical impacts of Headquarters’ inaction; that many states are sitting on permits until a decision comes from EPA Headquarters; and that POTWs are being told in permit renewal discussions and correspondence that the regional anti-blending policies are invariable and inflexible – essentially “final.” The three judge panel asked questions about permit review in state courts, and noted that the regulated community can often benefit from the availability of guidance documents. The panel expressed concern with EPA’s failure to control the regions, and with Headquarters’ obvious delay in issuing a final blending policy.

II. Highlights of the Decision
Despite the lively and lengthy oral argument and the favorable tone of the panel’s questions, the appeals court’s written judgment upholding the lower court is only one page long. First, the court finds that an agency’s action “must mark the consummation of the agency’s decisionmaking process” and “be one by which rights or obligations have been determined, or from which legal consequences will flow” to be final. The judgment notes that the challenged regional policies are “simply steps toward the regions’ ultimate decisions concerning whether to object to and/or deny particular permits.” Thus, the appeals court finds the district court held correctly that no final agency action is present “until something more happens” (e.g., permit denial, release of a national guidance document).

Second, the appeals court rejects the argument that the lower court should have reviewed the regional policies under the authority of Leedom v. Kyne, a U.S. Supreme Court case holding that courts can always review illegal administrative agency actions. The panel finds that regional actions “in excess of authority delegated to them by the EPA Administrator” does not amount to the rare type of statutory violation by an agency contemplated by Leedom. Finally, the panel holds that Headquarters’ failure to “prevent the regions from implementing the disputed policies” does not qualify as agency action unlawfully withheld or unreasonably delayed under the APA.

III. Next Steps
The appeals court’s decision confirms that until a city’s permit to blend is denied by a state or federal permitting authority, it generally will be difficult to obtain judicial review of the blending issue. Depending on developments at EPA Headquarters, it could be possible to challenge a final national blending policy in court – if, according to case law precedent, the final policy goes beyond “rule interpretation” and into “rulemaking.” Another possible way to obtain court review of blending could be, as suggested by EPA counsel in a May 25, 2005 follow-up letter to the appeals court, to challenge – as EPA action “unreasonably delayed” under the APA – the Agency’s failure to “takeover” and issue a state permit in a case where EPA has objected and the state has not corrected the permit to EPA’s satisfaction (see CWA § 402(d)(4)).

In May 2005, Assistant Administrator for EPA’s Office of Water Benjamin Grumbles stated in a letter to members of the U.S. House of Representatives that EPA will not finalize the 2003 blending policy as proposed, and that EPA is exploring new avenues to address the blending issue. Grumbles also recently stated in a press briefing that EPA needs to “rethink its approach to managing wet weather flows, but the reality is blending may be the only feasible solution in some circumstances.” He noted that if communities can demonstrate that blending is the “only feasible alternative under various scenarios, that is the direction [EPA] is likely to go.” These statements suggest that EPA may find ways to apply provisions of the federal bypass regulation (40 CFR § 122.41(m)) to blending.

In light of these recent developments, NACWA is working through its active committee structure to develop firm next steps on the blending issue in terms of its congressional and regulatory strategies. In the meantime, as confirmed by the district court decision and by Congressional statements during debate on EPA’s Fiscal Year 2006 budget, blending is a legal wet weather treatment practice. NACWA will continue to make this point clear to policymakers and the public as we work toward resolution of this critical POTW issue.